Introduction
Nigeria’s debt profile has been on the increase over the years, and the country may soon reach a debt threshold that would affect economic growth negatively. This may lead the economy to a debt trap. The study empirically examines the impact of external debt on economic growth in Nigeria. Descriptive and econometric analytical tools were used in data analyses. Data on Real Gross Domestic Product (RGDP), External Debt Stock, External Debt Service Payment, and Exchange Rate were collected from Central Bank of Nigeria Statistical Bulletin, 2014 and Debt Management Office 2014, various issues. Diagnostic tests were conducted using Augmented Dickey Fuller Unit Root Test, Co-integration, and Error Correction Model. Threshold Autoregressive model was used to test the level of debt sustainability in Nigeria within the period under review. The independent variable was RGDP, while the explanatory variables were External debt stock, External Debt Service Payment, and Exchange Rate.
The study showed that External Debt had a positive and significant relationship with Real Gross Domestic Product in the long run. The research shows that Nigeria is not in a debt trap and external debt is sustainable in Nigeria. The study recommended amongst others, utilization of external debt in to productive sectors of the economy rather than recurrent expenditure, currently Nigeria is not in a debt trap, therefore can still borrow for growth purposes and that the current trend in external debt is still viable. The country can borrow within the stipulated threshold. This will affect economic growth positively.
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